Nokia Corporation

Good morning, ladies and gentlemen. Welcome to Nokia's first quarter 2025 results call. I'm David Mulholland, head of Nokia Investor Relations, and today with me is Justin Hotard, our president and CEO, along with Marco Varenne, our CFO. Before we get started, a quick disclaimer. During this call, we will be making forward-looking statements regarding our future business, transactions, and financial performance, and these statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the risk factor section of our annual report on Form 20F, which is available on our investor relations website. Within today's presentation, references to growth rates will be mostly on a constant currency and portfolio basis, and this is basically to take into account both acquisitions that we've done and looked at on a like-for-like basis, if they've been present in both periods, along with any disposals. Where we refer to margins, it will be based on our comparable reporting. Please note that our Q1 report and the presentation that accompanies this call are published on our website. The report includes both reported and comparable financial results and a reconciliation between the two. In terms of the agenda for today's call, Justin will go through some of the key messages from the quarter, and then Marco will go through the financial performance before we move to Q&A. With that, let me hand over to Justin.

Thank you, David. Let me also welcome you to our conference call today. I'm honored to have been given the opportunity to lead Nokia. Nokia is a true global leader in connectivity with a strong heritage in technology. While I will share my initial observations with you today, please bear in mind it has only been three weeks since I started. I look forward to sharing more with you in the coming months and ultimately presenting our complete value creation vision for Nokia at a capital markets day that we will hold in November. I also look forward to meeting with many of our shareholders and analysts in the coming months as I ramp up. I've already had some great engagements with some of our customers, employees, and other key stakeholders. I'm impressed by our core technology base and the strength of our portfolio, including in RAN and core, as well as across IP optical and fiber networking technologies. We have a very strong base of products and services, and I think that is well recognized by our customers. It is also clear from my initial customer conversations that we are a critical trusted partner for their mobile and fixed infrastructure. In addition, we have significant potential to expand our presence in hyperscale enterprise and defense markets. In the time I've spent with our employees, I've been impressed with their innovative spirit, energy, and drive to unlock Nokia's full potential. Going forward, I will be focusing on our approach to capital allocation. I will ensure that we continue to both drive for efficiency and invest sufficiently in the right growth segments to deliver long-term value. I see opportunities across our portfolio to accelerate the transformation that is already underway. Turning to our Q1 financial performance, we continue to see encouraging signs of market recovery with solid order growth across the businesses. In the first quarter, our net sales declined 3% year over year, However, when you adjust for the over 400 million euro of catch-up net sales in Nokia technologies, net sales grew 7%. Specifically, we grew 11% in network infrastructure with all units growing and particularly had strong growth in optical networks at 15%. Cloud and network services grew 8% with strong demand for 5G core and had significant wins at AT&T, Boost Mobile, Oridu Katar, and Telefonica. Mobile networks continued to see sales stabilize, growing 2% in the quarter. I'm pleased to share that today we've also announced an extension of our RAN agreement with T-Mobile US. Our profitability in the quarter was impacted by the catch-up net sales in Nokia Technologies in the prior year, along with a one-time contract settlement in mobile networks of 120 million euros. Operating margin in network infrastructure expanded 190 basis points, and cloud and network services expanded 930 basis points. Our free cash flow performance in the quarter was also strong at over 700 million euros, resulting in a net cash position of 3 billion euros at the end of the quarter. Let me now touch on the current environment. While we are not immune to the evolving global trade landscape, My initial customer feedback indicates that our markets should prove to be relatively resilient. Considering this, we continue to expect strong growth in network infrastructure, growth in cloud and network services, and largely stable net sales in mobile networks. We are actively monitoring the situation and staying closely engaged with our customers. With the visibility we have today, we expect tariffs could have a 20 to 30 million euro impact to our operating profit in Q2. Our supply chain teams are proactively working to further mitigate the exposure, leveraging our global manufacturing network. Therefore, our guidance remains unchanged. It should be noted, however, that considering the unexpected charge that impacted mobile networks in the quarter, achieving the top end of the operating profit range will now be more challenging. For clarity, considering the volatility of the situation, we have not taken an assumption related to tariffs in our second half of 2025, and the integration of Infinera does not meaningfully impact the range. The final topic I want to touch on this morning is the Infinera acquisition. Based on my initial assessment, I'm convinced of its value creation potential and confident we will achieve the expected synergies. As a quick reminder, this acquisition brings a number of significant benefits. It gives us the scale to accelerate our product roadmaps and to drive more innovation. It also increases our access to hyperscale customers, which are a key growth driver in both cloud and AI data center investments. Finally, it's a complimentary acquisition in terms of the customer, geographic, and technology profile. The Q1 performance illustrated a number of these points clearly with strong momentum in the business. Optical networks grew 15% in the quarter, as I mentioned, and with a book to bill above one. As a part of the integration, we've already made many portfolio decisions and communicated them to customers. Their feedback continues to be positive and we are on track to achieve the synergy targets. While this progress is encouraging, There is still a lot of work ahead of us. With that, let me hand over to Marco to go through the financials in more detail.

Thanks, Justin, and hello from my side as well. I will start by discussing our overall group performance. Q1 net sales declined 3% on a constant currency and portfolio basis. As Justin explained, we saw strong growth in both network infrastructure and cloud and network services, while mobile networks also grew somewhat. These were offset by a challenging comparison in Nokia technologies, as the EuroGo quarter benefited from over 400 million of catch-up net sales related to licensing deals signed in the quarter. Our gross margin decreased by 820 basis points to 42.3%, and this was mainly a result of the lower Nokia Technologies net sales. And it was also impacted by the one-off settlement charge in mobile networks. This, in addition to higher OPEX and a currency-related loss in Nokia Venture funds, led to a 3.6% operating margin in Q1. Pleasingly, we generated over 700 million of free cash flow in the quarter and ended quarter with 3 billion of net cash, which I will go into more detail on shortly. Now, turning to financial performance per business group. First, network infrastructure. They delivered a strong 11% growth. This reflected growth across each of the business units. As optical networks had a particularly strong quarter, growing 15%, fixed networks and IP networks grew 9% and 7% respectively. First margin was relatively stable, while operator margin expanded 190 basis points year-on-year to 7.8%. And this is mainly the result of the higher net sales offsetting increased investments into growth opportunities. The stabilization in mobile networks continued in Q1, with the net sales growing 2%. The net sales in North America grew at a double digit pace, as there were low levels of investment activity in the year-ago quarter. India also returned to growth within the APEC region, while EMEA sales declined. Cross-margin declined 10 percentage points to 30.9%, reflecting the one-off contract settlement, which had a net impact of 120 billion euros. If you exclude this, mobile networks cross-margin would have been more aligned with the normalized cross-margin range of 38%. to 39% we had seen during 24. Operating margin was negative 8.8, mainly the result of the low cross margin. Turning to cloud and network services, the net sales grew by 8% of the quarter, reflecting continued momentum in core networks and mainly in 5G core. From a regional perspective, CNS saw broad-based growth with strength in India. The higher level of net sales drove strong expansion in both cross and operator margin, giving the business a strong start to the year. And turning now to Nokia technologies, net sales declined 52%, but this was entirely due to a challenging comparison in the year-ago quarter, which benefited from over 400 million of catch-up net sales. This was somewhat offset by the deals signed over the past 12 months and catch-up net sales booked in the quarter related to agreements signed in quarter one. Nokia technologies continue to execute and sign a deal with Amazon in addition to other smaller deals. The annual net sales run rate has now increased to approximately 1.4 billion, despite a headwind from recent currency movements. Let's now look at the net sales per region and a few things to point out here. First, you can see that North America was once again one of the biggest contributors to the net sales growth, and we saw strong growth across each of the network's business groups with particular strength in network infrastructure and mobile networks. India returned to growth mainly driven by network infrastructure and especially by fixed networks where we benefited from a strong fixed wireless access demand. India also grew in mobile networks and cloud and network services. Europe saw a sizable decline, but this was mostly driven by Nokia technologies, as all its net sales are booked in this region. Excluding this, net sales in Europe would have declined 7%. A couple words about our cash performance. In quarter one, we generated over 700 million in free cash flow. and as we saw sizable inflows related to net broking capital. And this came mainly from the seasonal decline in receivables we typically see in Q1. We ended the quarter with 3 billion in net cash. As you can see on the slide, the decline in net cash mainly reflected the acquisition of Infinera with cash outflows in the quarter. And this consisted of cash proceeds related to Infinera equity, the convertibles, as well as the share buybacks we did to offset the delusion from the Nokia shares issued as part of the deal. As a reminder, when modeling quarter two cash, This is when you see the outflows related to our 24 performance related employee variable pay. Finally, moving to our 2025 outlook, which remains unchanged, we continue to expect our 25 comparable operating profit to be in the range of 1.9 to 2.4 billion. However, Given the unexpected charge that impacted mobile networks, it will be more challenging to achieve the top end of this range. We continue to expect free cash flow conversion to be 50 to 80% of comparable operating profit. And with that, let me hand it over to David for Q&A.